I.

Part I
General Provisions

Origin of Insurance
Insurance Contract General Classifications
o
Modern insurance started with marine insurance and, from there, the law of
1.
Life Insurance includes whole life insurance, endowment policies (proceeds
insurance has gradually taken form and developed until present when every
of insurance after maturity date of policy), annuities (monthly benefit), health,
conceivable form or kind of risk seems to be covered.
medical, & accident insurance (covers illness/disability)

Development of Insurance in the Philippines

2.
Non-life Insurance involve property insurance
a.
Spanish period Spanish Code of Commerce, Old Civil Code of 1889
a.
Marine Insurance
b.
American Regime Insurance Act of 2427 (July 1, 1915) repealed by PD 612
b.
Fire Insurance and other allied insurance (other calamities)
(Insurance Code of the Phil. Dec. 18, 1974)
c.
Casualty Insurance (i.e. Motor vehicle insurance)
c.
PD 1460 (June 11, 1978) Insurance Code of 1978 amended by PD 1814 and
d.
Suretyship
BP 874

Development of Insurance Company in the Philippines

II. Contract of Insurance
a.
Marine Insurance first non-life insurance: introduced by Strachan, Murray &

Definition
Co., Inc. by a London based company.
A contract of insurance is an agreement whereby one undertakes for a
b.
Sun Life Insurance Company of Canada first life insurance (1898)
consideration to indemnify another against loss, damage or liability arising from
c.
Yek Tong Lin Fire and Insurance Company (now, Philippine First Insurance
an unknown or contingent event.
Company) first domestic non-life insurance (1906)
o
Just like any other contract, it must have the three essential
d.
Insurance Life Assurance Company first domestic life insurance (1910)
elements: consent, object, consideration.

Laws Governing Insurance in the Philippines

o
What sets it apart from other contracts is the presence of its
a.
Insurance Code of 1978, as amended to consolidate and codify all the
distinguishing elements.
insurance laws of the Philippines

Characteristics/Nature of insurance contracts

b.
Civil Code of the Philippines applies in the absence of applicable provision in
1.
Consensual there must be meeting of minds
the Insurance Code
Perfection of Insurance Contracts
c.
General Principles in the US (State of California) because our laws are

Must be assented to by both parties either in person or by their agents

copied verbatim (except Chapter V) from the State of California

It is only when the insurer accepts the application and communicates

Applicability of the Civil Code

the same to the applicant that the contract of insurance is perfected
o
Art. 2011 contract of insurance is governed by special law

If offer and acceptance are made by correspondence, the acceptance

o
Arts. 739 & 2012 on void donations
shall not be binding until it has been made known to the one making
o
Arts. 2012-27 life annuity
the offer.
o
2186 motor vehicle liability insurance

For the contract to be valid and binding, there must be meeting of

o
2207 subrogation by operation of law, applies only to property insurance
minds of the parties and as well as payment of premium on the policy
o
1318 essential requisites of contract (consent, object, consideration)

There is nothing more to accept if the offerer is already dead

o
1319 & 1323 perfection of contract meeting of minds (object, cause)
2.
It is an aleatory contract. The parties reciprocally bind themselves to do
o
Other provisions on obligations and contracts
something in consideration with what the other will give or do. Both

Interpretation of Insurance Laws

parties will assume a risk.

Provisions must be construed in their plain, ordinary and popular sense if there
3.
It is a contract of indemnity. Never meant to enrich, merely to restore the
is no doubt as to the terms of an insurance contract
insured from his actual loss by the occurrence of the peril insured

However, when terms are ambiguous, uncertain or doubtful, they should be

against. Does not apply in life insurance, since no value can be fixed
interpreted strictly and most strongly against the insurer, and liberally in favor of
against the life of a person, the value of a life in the eyes of the law is the
the insured.
same.
o
The insured usually has no voice in the selection or arrangement of the
4.
It is a conditional contract.
words employed, and the language of the contract is selected with great
5.
It is a personal contract. Application is approved based on the merits of
care and deliberation by experts and legal advisers employed by and
the person, thus a life insurance cannot be assigned to a third person, a
acting exclusively in the interest of, the insurance company
property insurance cannot be assigned without the consent of the
o
In such case, ambiguous provisions are construed strictissimi juris or of
insurer.
strictest terms against the insurer
6.
It is an executory contract after payment of premiums. On the part of the
o
Insurance policies are contracts by adherence, agreements prepared by
insured after payment of premiums, on the part of the insurer, liability
one party &imposed upon parties dealing w/ it which may not be changed
shall attach upon the happening of the peril insured against.
7.
It is a conditional contract. Liability of insurer will attach only upon the
happening of the peril insured against. i.e. fire insurance is a insurance

Special Laws on Insurance

against fire and not against any other calamity
1.
PD 1460 Insurance Code of 1978
8.
Contract of adhesion. It was prepared only by one of the parties, the
2.
PD 1146 Revised Government Service Insurance Act, insurance for
insurer, and agreed by the insured, in a take it or leave it position.
government employees
9.
Doctrine of uberrimae fidei utmost good faith, absolute & perfect
3.
RA 1161 Social Security Act of 1954
openness and honesty, absence of any concealment, misrepresentation.
4.
RA 656 as amended by PD 245 Property Insurance Laws for government
Expected on both parties.
properties
5.
RA 4898 as amended by RA 5756 Life disability and accident insurance of

Distinguishing Elements of Insurance Contract (BAR Q)

barangay officials
6.
RA 3591 established the Philippine Development Insurance Co. (PDIC),
1.
Insurable interest the insured possesses an interest susceptible of
insurance of deposits of all banks, maximum of 500k
pecuniary estimation. Acquire pecuniary benefit from the preservation of
7.
Corporation Code of the Philippines apply to all insurance corporation
the thing and pecuniary loss from the destruction of the thing.
engaged in business in the Philippines
2.
Insured is subject to a risk of loss through the destruction or impairment
of that interest by the happening of designated perils insured against. i.e.
fire insurance of a house

Pre-need Plan v. Insurance

3.
Insurer assumes that risk of loss
Insurance Plan
Pre-need Plan
4.
Risk Distributing Device assumption of risk is a part of a general
Global industry
Local industry
scheme to distribute actual losses among a large group of persons
Intended to meet a probable future need,
Intended to meet a certain future need,
bearing somewhat similar risks. Insurer assumes the risk, contract is a
which may or may not happen, depending
certain to happen, i.e. educational plan,
risk distributing device and not a risk shifting device. Payment of one
on whether the contingent event would
retirement, death
insured against a peril in case of a loss will come from a general
arise
insurance fund, coming from premiums paid by the insured and other
Generally cannot be assigned or transferred Transferrable to a third person
parties who availed of such insurance policy. The insurer assumes a
to a third person because it is a personal
great risk thus it also insures itself. Risk shifting is when payment comes
contract
from the income of the insurer.
Contract of indemnity
More of a savings and investment plan
Insurance Commission

SEC

5.

As consideration for the insurers promise, the insured makes a ratable

contribution, called premium, to a general insurance fund

Perfection of Insurance Contract

o
Theory of cognition v. Manifestation theory
Theory of Cognition means that the insurance contract is perfected the
moment the offeror learns of the acceptance of his offer by the other party

What is Doing an Insurance Business

a.
Making or proposing to make, as insurer, any insurance contract
b.
Making or proposing to make, as surety, any contract of suretyship as a
vocation and not as merely incidental to any other legitimate business or
activity of the surety
c.
Doing any kind of business, including reinsurance business, specifically
recognized as constituting the doing of an insurance business
d.
Doing or proposing to do any business in substance equivalent to any of the
foregoing in a manner designed to evade the provisions of Insurance Code.
Even if the parties do not call their agreement as an insurance contract, but if
the substance is similar to that under a, b, c, with the intention of evading
insurance laws, then the parties will be deemed to have entered in an
insurance contract.

Exception:
Rule on Estoppel if there are other circumstances that led the applicant to believe and
rely on the belief that his application is already approved other than inaction/delay
Theory of Manifestation once the insurance company has accepted the application, even
if the offerer has not yet received the acceptance, then there is already a perfected contract
(not applicable in the Phils.)
o
Principal Object and Purpose Test

If the principal object is assumption of risk and indemnification of

loss, the contract is insurance. If it is service and which transfer
and distribution are merely incidental, then the arrangement is not
insurance. Look at the intention of the parties.

Interpretation of Insurance Contracts

o
Clear provisions given ordinary meaning
o
Ambiguous provisions interpreted against insurer
o
Stipulations cannot be segregated piecemeal

Provisions in an insurance contract must be read in its entirety and

the stipulations therein cannot be segregated in determining the
intention of the parties.

The provisions must be construed together to arrive at their true

meaning.

Thus, all provisions of the insurance policy should be examined

and interpreted in consonance with each other.
o
Judicial construction cannot alter terms

If the terms of the contract are clear and unambiguous, there is no

room for construction and such terms cannot be enlarged or
diminished by judicial construction

The terms of the policy constitute the measure of the insurers

liability.

In the absence of a statutory prohibition to the contrary, insurance

companies have the same rights as individuals to limit their liability
and impose whatever conditions they deem best upon their
obligations not inconsistent with public policy.
Test to determine if a contract is insurance or not
Depends on the nature of the promise, the act required to be performed, and
the exact nature of the agreement in the light of the occurrence, contingency,
or circumstances under which the performance becomes requisite.
o
Protection & Indemnity Club

White Gold Marine Services

Ship owners band together for protection against liability

incidental to ship owning that members may incur. They
contribute to a common fund, and said common fund will
answer to any damage or liability that may be caused to a
third person.

SC ruled that they are engaged in the business of insurance,

thus they have to comply with the requirements provided
under the insurance code. Intent is to answer to liabilities
that may be incurred by any of its members to third persons.
o
Mutual Insurance Companies

SC says these are entities doing an insurance business. The

company is owned by the policy holders, members are both the
insurer and the insured. It has no capital stock and contributions of
the members are the only sources of funds to meet losses and
expenses. It is designed to promote the welfare of its members
and the money collected solely for their own protections. If there is
no intent to indemnify, then it is not considered as an insurance.

Mutual Benefit Association - Any society, association or

corporation, without capital stock, formed or organized not for
profit but mainly for the purpose of paying sick benefits of
members, or of furnishing financial support to members while out
of employment, or of paying to relatives of deceased members of
fixed or any sum of money.

Health Care Agreement

Under the case of Philam, what is involved is a health care

agreement, the SC held that the agreement is in the nature of a
non life insurance. Which is primarily a contract of indemnity. The
liability of insurer attaches once the member incurs medical or
hospital or any other expense arising from sickness during or other
stipulated contingent. Though given a different name, such
contract is covered under the insurance laws.

*Even if there is no profit obtained or separate consideration given, that cannot be

used as a measure to say that there is no insurance contract between the parties.
There are instances when an agreement made will be classified as an insurance
contract because the SC says so, like the case of Eternal Gardens. If the business entity
sells goods and the buyer will be entitled to automatic insurance coverage, the offer of
insurance, and acceptance happens at the same time as the acceptance of the offer to sell
goods. i.e. On a purchase of a tv, the insurance shall take effect upon the perfection of the
sale. Considering that there is an agreement for automatic insurance coverage, once the
sale is perfected, then there is also the insurance contract between the parties, the
issuance of a receipt shall signify the coverage of insurance.

Nature of Insurance Business

o
One impressed with public interest
o
One who sets up such company should have paid at least 1 Billion paid
up capital and maintain such during the existence of said business

Suretyship
o
an agreement whereby a party called the surety guarantees the
performance by another party called the principal or obligor of an
obligation or undertaking in favor of a third party called oblige.
o
A contract where a person binds himself solidarily with the principal
debtor for the fulfillment of an obligation
o
A contract of suretyship shall be deemed to be an insurance contract
only if made by a surety who or which is, as such, doing an insurance
business as a vocation.
o
When a person acts as surety in any contract of suretyship as a mere
incident of a legitimate business, such contract shall not be deemed to
be a contract of insurance since it lacks the element of insurance that the
assumption of risk should be a part of a general scheme to distribute
losses among a large group of persons bearing somewhat similar risks.

Cases

Eternal Gardens Memorial Park v. Philippine American Life

Basic Facts: Philamlife entered into an agreement denominated as Creditor Group Life
Policy with petitioner Eternal Gardens Memorial Park Corporation (Eternal). Under the
policy, the clients of Eternal who purchased burial lots from it on installment basis would be
insured by Philamlife. The amount of insurance coverage depended upon the existing
balance of the purchased burial lots. The pertinent provision under the insurance policy is
as follows:
The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a
loan with the Assured. However, there shall be no insurance if the application of the Lot
Purchaser is not approved by the Company.
Eternal was required under the policy to submit to Philamlife a list of all new lot
purchasers, together with a copy of the application of each purchaser, and the amounts of
the respective unpaid balances of all insured lot purchasers. Eternal complied by submitting
a letter dated December 29, 1982, containing a list of insurable balances of its lot buyers for
October 1982. One of those included in the list as new business was a certain John
Chuang. His balance of payments was 100K. On August 2, 1984, Chuang died. Eternal
sent a letter dated to Philamlife, which served as an insurance claim for Chuangs death.
Attached to the claim were certain documents. In reply, Philamlife wrote Eternal a letter
requiring Eternal to submit the additional documents relative to its insurance claim for
Chuangs death. Eternal transmitted the required documents through a letter which was
received by Philamlife. After more than a year, Philamlife had not furnished Eternal with any
reply to the latters insurance claim. This prompted Eternal to demand from Philamlife the

payment of the claim. In response to Eternals demand, Philamlife denied Eternals

insurance.
Ruling: Held that Philamlife should pay the insurance proceeds. An examination of the
provision of the POLICY under effective date of benefit, would show ambiguity between its
two sentences. The first sentence appears to state that the insurance coverage of the
clients of Eternal already became effective upon contracting a loan with Eternal while the
second sentence appears to require Philamlife to approve the insurance contract before the
same can become effective.
It must be remembered that an insurance contract is a contract of adhesion
which must be construed liberally in favor of the insured and strictly against the insurer in
order to safeguard the latters interest
On the other hand, the seemingly conflicting provisions must be
harmonized to mean that upon a partys purchase of a memorial lot on
installment from Eternal, an insurance contract covering the lot purchaser is
created and the same is effective, valid, and binding until terminated by
Philamlife by disapproving the insurance application. The second sentence of
the Creditor Group Life Policy on the Effective Date of Benefit is in the nature
of a resolutory condition which would lead to the cessation of the insurance
contract. Moreover, the mere inaction of the insurer on the insurance
application must not work to prejudice the insured; it cannot be interpreted as a
termination of the insurance contract. The termination of the insurance contract
by the insurer must be explicit and unambiguous.

Stokes v. Malayan Insurance

Basic Facts: Daniel Adolfson had a subsisting Malayan car insurance policy with coverage
against own damage as well as 3rd party liability when his car figured in a vehicular
accident with another car, resulting to damage to both vehicles. At the time of the accident,
Adolfsons car was being driven by James Stokes, who was authorized to do so by
Adolfson. Stokes, an Irish tourist who had been in the Philippines for more than 90 days,
had a valid and subsisting Irish drivers license but without a Philippine drivers license.
Adolfson filed a claim with Malayan but the latter refused to pay contending that Stokes was
not an authorized driver under the Authorized Driver clause of the insurance policy in
relation to Section 21 of the Land Transportation Office.
Ruling: The SC held that Malyan is not liable to pay the insurance claim. A contract of
insurance is a contract of indemnity upon the terms and conditions specified therein. When
the insurer is called upon to pay in case of loss or damage, he has the right to insist upon
compliance with the terms of the contract. If the insured cannot bring himself within the
terms and conditions of the contract, he is not entitled as a rule to recover for the loss or
damage suffered. For the terms of the contract constitute the measure of the insurers
liability, and compliance therewith is a condition precedent to the right of recovery. At the
time of the accident, Stokes had been in the Philippines for more than 90 days. Hence,
under the law, he could not drive a motor vehicle without a Philippine drivers license. He
was therefore not an authorized driver under the terms of the insurance policy in question,
and Malayan was right in denying the claim of the insured. Acceptance of premium within
the stipulated period for payment thereof, including the agreed period of grace, merely
assures continued effectivity of the insurance policy in accordance with its terms. Such
acceptance does not estop the insurer from interposing any valid defense under the terms
of the insurance policy. The principle of estoppel is an equitable principle rooted upon
natural justice which prevents a person from going back on his own acts and
representations to the prejudice of another whom he has led to rely upon them. The
principle does not apply to the instant case. In accepting the premium payment of the
insured, Malayan was not guilty of any inequitable act or representation. There is nothing
inconsistent between acceptance of premium due under an insurance policy and the
enforcement of its terms.

Perez v. CA
Basic Facts: Primitivo B. Perez had been insured with the BF Lifeman Insurance
Corporation for P20,000.00. Sometime in October 1987, an agent of the insurance
corporation, visited Perez in Quezon and convinced him to apply for additional insurance
coverage of P50,000.00. Virginia A. Perez, Primitivos wife, paid P2,075.00 to the agent.
The receipt issued indicated the amount received was a "deposit." Unfortunately, the agent
lost the application form accomplished by Perez and he asked the latter to fill up another
application form. The agent sent the application for additional insurance of Perez to the
Quezon office. Such was supposed to forwarded to the Manila office.
Perez drowned. His application papers for the additional insurance of
P50,000.00 were still with the Quezon. It was only after some time that the papers were
brought to Manila. Without knowing that Perez died, BF Lifeman Insurance Corporation
approved the application and issued the corresponding policy for the P50,000.00.
Petitioner Virginia Perez went to Manila to claim the benefits under the
insurance policies of the deceased. She was paid P40,000.00 under the first insurance
policy for P20,000.00 but the insurance company refused to pay the claim under the
additional policy coverage of P50,000.00, the proceeds of which amount to P150,000.00.
The insurance company maintained that the insurance for P50,000.00 had not
been perfected at the time of the death of Primitivo Perez. Consequently, the insurance
company refunded the amount paid.
BF Lifeman Insurance Corporation filed a complaint against Virginia Perez
seeking the rescission and declaration of nullity of the insurance contract in question.

Petitioner Virginia A. Perez, on the other hand, averred that the deceased had
fulfilled all his prestations under the contract and all the elements of a valid contract are
present.
On October 25, 1991, the trial court rendered a decision in favor of petitioner
ordering respondent to pay 150,000 pesos. The Court of Appeals, however, reversed the
decision of the trial court saying that the insurance contract for P50,000.00 could not have
been perfected since at the time that the policy was issued, Primitivo was already dead.
Petitioners motion for reconsideration having been denied by respondent
court, the instant petition for certiorari was filed on the ground that there was a
consummated contract of insurance between the deceased and BF Lifeman Insurance
Corporation.
Ruling: The SC held that the widow cannot receive proceeds from the second insurance
policy. Perezs application was subject to the acceptance of private respondent BF Lifeman
Insurance Corporation. The perfection of the contract of insurance between the deceased
and respondent corporation was further conditioned with the following requisites stated in
the application form:
"there shall be no contract of insurance unless and until a policy is issued on
this application and that the said policy shall not take effect until the premium
has been paid and the policy delivered to and accepted by me/us in person
while I/We, am/are in good health."
BF Lifeman didnt give its assent when it merely received the application form and all the
requisite supporting papers of the applicant. This happens only when it gives a policy.
It is not disputed, however, that when Primitivo died on November 25, 1987, his
application papers for additional insurance coverage were still with the branch office of
respondent corporation in Quezon. Consequently, there was absolutely no way the
acceptance of the application could have been communicated to the applicant for the latter
to accept inasmuch as the applicant at the time was already dead.
Petitioner insists that the condition imposed by BF that a policy must have
been delivered to and accepted by the proposed insured in good health is potestative,
being dependent upon the will of the corporation and is therefore void. The court didnt
agree. A potestative condition depends upon the exclusive will of one of the parties and is
considered void. The Civil Code states: When the fulfillment of the condition depends upon
the sole will of the debtor, the conditional obligation shall be void.
The following conditions were imposed by the respondent company for the
perfection of the contract of insurance: a policy must have been issued, the premiums paid,
and the policy must have been delivered to and accepted by the applicant while he is in
good health.
The third condition isnt potestative, because the health of the applicant at the
time of the delivery of the policy is beyond the control or will of the insurance company.
Rather, the condition is a suspensive one whereby the acquisition of rights depends upon
the happening of an event which constitutes the condition. In this case, the suspensive
condition was the policy must have been delivered and accepted by the applicant while he
is in good health. There was non-fulfillment of the condition, because the applicant was
already dead at the time the policy was issued.
As stated above, a contract of insurance, like other contracts, must be
assented to by both parties either in person or by their agents. So long as an application for
insurance has not been either accepted or rejected, it is merely an offer or proposal to
make a contract. The contract, to be binding from the date of application, must have been a
completed contract.
The insurance company wasnt negligent because delay in acting on the application
does not constitute acceptance even after payment. The corporation may not be penalized
for the delay in the processing of the application papers due to the fact that process in a
week wasnt the usual timeframe in fixing the application. Delay could not be deemed
unreasonable so as to constitute gross negligence.

Villacorta v. Insurance Commission

Facts: Villacorta had her Colt Lancer car insured with Empire Insurance Company against
own damage, theft and 3rd party liability. While the car was in the repair shop, one of the
employees of the said repair shop took it out for a joyride after which it figured in a vehicular
accident. This resulted to the death of the driver and some of the passengers as well as to
extensive damage to the car.
Villacorta filed a claim for total loss with the said insurance company. However,
it denied the claim on the ground that the accident did not fall within the provisions of the
policy either for the Own Damage or Theft coverage, invoking the policy provision on
Authorized Driver Clause.
This was upheld by the Insurance Commission further stating that the car was
not stolen and therefore not covered by the Theft Clause because it is not evident that the
person who took the car for a joyride intends to permanently deprive the insured of his/ her
car.
SC: The insurer company should pay the claim Where the insureds car is wrongfully taken
without the insureds consent from the car service and repair shop to whom it had been
entrusted for check-up and repairs (assuming that such taking was for a joy ride, in the
course of which it was totally smashed in an accident), respondent insurer is liable and
must pay insured for the total loss of the insured vehicle under the Theft Clause of the
policy.
Assuming, despite the totally inadequate evidence, that the taking was temporary
and for a joy ride, the Court sustains as the better view that which holds that when a
person, either with the object of going to a certain place, or learning how to drive, or
enjoying a free ride, takes possession of a vehicle belonging to another, without the consent

of its owner, he is guilty of theft because by taking possession of the personal property
belonging to another and using it, his intent to gain is evident since he derives therefrom
utility, satisfaction, enjoyment and pleasure.

Lalican v. Insurance Life Assurance Co.

Facts: Violeta is the widow of the Eulogio Lalican. During his lifetime, Eulogio applied for an
insurance policy with Insular Life. Violeta was named the primary beneficiary.
Under the terms, Eulogio was to pay premiums on a quarterly basis with a
grace period of 31 days for the payment of each premium subsequent to the first. If any
premium was not paid on or before the due date, the policy would be in default, and if the
premium remained unpaid until the end of the grace period, the policy would automatically
lapse and become void.
Eulogio paid the premiums, however he failed to pay the premium due on

January 24, 1998, even after the lapse of the grace period of 31 days. Therefore, lapsed
and become void. Eulogio submitted to the Cabanatuan District Office of Insular Life an
application for reinstatement together with the payment of the premium due. Insular Life
notified Eulogio that his application for reinstatement could not be fully processed because
of the unpaid interest thereon. Eulogio was likewise advised by Malaluan (insurance agent)
to pay the premiums that subsequently became due plus interest. Eulogio went to
Malaluan's house and paid for the interest which was received by Malaluan's husband.

Later that day, Eulogio died. Without the knowledge of Eulogio's death, Malaluan forwarded
to the Insular Life the application for reinstatement and the payment made by Eulogio.
However, Insular Life did not act upon such reinstatement for they knew already of
Eulogio's death. Violeta filed for the insurance claim. Insular Life then informed Violeta in a
letter that her claim could not be processed because the insurance policy had lapsed
already and that Eulogio failed to reinstate the same and the payment made done thru
Malaluan's husband was, under the insurance policy, was considered a deposit only until
B.
approval of the said application. Enclosed to this letter was a check representing the full
refund of the past payments made by Eulogio. Violeta requested for a reconsideration of
her claim and returned the check to Insular Life. Insular Life agreed to conduct a reevaluation of Violeta's claim. Without waiting for the result of the re-evaluation, Violeta filed
with a case with the RTC.

SC: Eulogio was not able to reinstate the lapsed insurance policy on his life before his
death. For the insurance policy is clear on the procedure of the reinstatement of the
insurance contract, of which Eulogio has failed to accomplish before his death. As provided
by the policy, insurance shall be deemed reinstated upon the approval of the insurance
policy of the application for reinstatement. The approval should be made during the lifetime
of the insured, in the case at bar, it wasnt.

Ty v. First National Surety Co.

Facts: Diosdado C. Ty was employed as an operator mechanic foreman in the Broadway
Cotton Factory and insured himself in 18 local insurance companies with Broadway Cotton
Factory as his beneficiary. When broke out at the Broadway Cotton Factory where Ty was
working, he was injured on his left hand by a heavy object. His injuries caused temporary
total disability on his left hand so he filed a claim against all defendants who rejected the
claim reasoning that there it was not covered in his policy because there was no severance
of amputation of the left hand
SC: Ty cannot go beyond the clear and express conditions of the insurance policies, all of
which define partial disability as loss of either hand by amputation through the bones of the
wrist
Note that the disability of plaintiff's hand was merely temporary, having been caused
by fracture of the index, the middle and the fourth fingers of the left hand. The
agreement contained in the insurance policies is the law between the parties
Part II
A. What may be insured (Secs. 3-5)
Any contingent event or unknown event, whether past or future, which may indemnify a
person having an insurable interest, create a liability against him. i.e. insurance of a vessel
not knowing that such vessel was already lost (past) still a valid insurance, since a the
time of insurance, the owner was not aware that the object of insurance was already lost

Insurable Risks
1.
Insurance against Damage
2.
Insurance against Liability

Insurance by married woman

a married woman may insure her own life and that of her children (minor)
without the consent of the husband and exercise all rights and privileges of an
owner under a policy

she may likewise insure here separate property without the consent of the
husband as the wife has the right to administer her separate property

the wife must have the consent of the husband before she can insure the life of
the husband

Can the minor insure himself? Yes, still a valid contract, for as long as the
beneficiary is himself, parents or estate. But if a property insurance, insurance
of the minor will be a voidable contract because one of the parties is
incapacitated to enter into a valid contract.

C.

I.e. Mother insured the life of a child and named herself as the beneficiary,
upon the death of the mother, under the law, all the rights and interests of the
mother will vest to the minor. Meaning the minor can continue paying the
premiums in the policy.
The clause unless otherwise provided, means that for example when the
mother (owner of the policy) insured the life of the minor but named the
husband as beneficiary, upon the death of the mother, the rights, interest and
title over the policy will vest to the beneficiary, who will have right to continue
the payment of the policy which will continue to be effective.

Effect of death of policys original owner

o
In case the original owner of a policy taken on the life of a minor should
predecease the latter, all rights, title and interest in the policy shall
automatically vest in the minor, unless otherwise provided for in the policy.
o
Even if the original owner of the policy designated himself as beneficiary in a
policy insuring the life of a minor, the death of the original policy owner shall
automatically vest title on the policy of the minor.
Prohibition against gambling insurance
o
Gambling may possibly result in profit, which is not true in insurance, and
therefore, gambling of any sort may not be insured
o
Gambling courts fortune, the insured seeks to avoid misfortune.
o
Gambling tends to increase the inequality of fortune, while the contract of
insurance tends to equalize fortune.
Parties to the Contract (Secs. 6-7)
1.
Insurer a person who undertakes to indemnify another by a contract of
insurance
2.
Insured a person to be indemnified
3.
Beneficiary who receives a benefit or advantage, or who is entitled to the
benefit of a contract, one to whom the insurance is payable or who is entitled to
the proceeds of the policy on the occurrence of the event designated

Who may be an insurer

Any partnership, association or corporation duly authorized to transact

insurance business as elsewhere provided in the Insurance Code

Who may be insured

anyone except a public enemy may be insured

public enemy is a nation at war with the Philippines and also every
citizen or subject of such nation

a public enemy may not be insured because the purpose of war is to

cripple the power and exhaust the resources of the enemy

it is inconsistent that one country should destroy its enemy, and repay in
insurance the value of what has been destroyed

in case of war, policy becomes automatically void but insurer has the
responsibility to reimburse the premiums paid
Who may insure mortgaged property (Secs. 8-9)

when a property is mortgaged, the mortgagor and mortgagee may take out
separate policies with the same or different insurance companies

mortgagor may insure the property mortgaged to the full value of such property

mortgagee can insure the same only to the extent of the amount of his credit
Insurance by mortgagor without assigning loss to mortgagee
o
Where the mortgagor insures the property mortgaged without making the loss
payable to the mortgagee, upon occurrence of the loss, only the mortgagor my
recover from insurer
o
Mortgage constituted shall extend to the proceeds of the indemnity paid by the
insurer of the mortgaged property upon occurrence of the loss, and therefore,
the mortgagee has a lien on the proceeds of the policy
Insurance by mortgagor making loss payable to mortgagee
o
Where the mortgagor insures the property mortgaged in his own name
providing that the loss shall be payable to the mortgagee, or assigns the policy
to the mortgagee, the effects as follows:
i. Insurance is still deemed to be upon the interest of the mortgagor. The
contract is one between the insurer and the mortgagor who is insured and
not one between the insurer and the mortgagee
ii. Any act of the mortgagor, prior to the loss, which would avoid the insurance,
will have the same effect although the property is in the hands of the
mortgagee.
iii. Any act which, under the contract of insurance, is to be performed by the
mortgagor, may be performed by the mortgagee with the same effect as if it
has been performed by the mortgagor.
iv. Upon occurrence of the loss, the mortgagee is entitled to recover to the
extent of his credit and the balance, if any, is payable to the mortgagor
v. Upon discovery by the mortgagee to the extent of his credit from the insurer,
the mortgagor is released from his indebtedness

The obligation of the mortgagor to the mortgagee shall remain to be outstanding

even if the mortgagee was made as the beneficiary, or even if insurance policy
was assigned to the mortgagee. It will only serve as a mere additional security.

Examples and some discussions:

If A has insured his house, and assigned the insurance policy to B or named him as
beneficiary, the same will not constitute as payment of his obligation but mere serve as
an additional security for the debt.
A assigned a policy to B, because of non payment of premiums, or violation of a provision in
the policy, a notice of cancellation has been issued. But given that the policy has been
assigned to B, notice was given to B. Will the notice be considered as valid?
No, notice of cancellation to B is not a valid notice since such should have been
given to A as one who remains to be the party in interest in the insurance policy.
Policy was obtained by A himself, thus remains to be the party in interest in so far as
the policy is concerned, thus any notice should be addressed to A.
Any act done by the mortgagor which would render the policy void will have the same
effect even if the property has been delivered to the mortgagee.
Any act that can be done by the mortgagor can also be done by the mortgagee and
shall have the same effect as if done by the mortgagor provided that act will benefit
both like the payment of premiums
If the mortgagor discontinue the payment of the policy, can the mortgagee continue?
Yes.
If the mortgaged property was damaged by reason of fire, the mortgagee being the
assignee of the policy can collect the proceeds of the policy, but will not become the
owner of the proceeds exceeding the amount of credit, the excess shall be delivered
to the mortgagor.
If at the time of the loss of the house, and the mortgaged debt has already been paid,
then the proceeds of the policy will all be go to the mortgagor (contract of indemnity),
being the owner of the property.
If the insurance was obtained by the mortgagee for his own exclusive benefit/interest,
then only he can recover the proceeds of the policy, furthermore, the mortgagee
cannot collect in excess of the extent of his credit even though the insurance
obtained exceeds that of said amount of credit. i.e. credit 3m, insurance 5m, claim for
recovery up to 3m only. The 2m does not go to the mortgagor since mortgage was
obtained by the mortgagee for his exclusive interest. Once the amount has been
recovered, this will extinguish the obligation of the mortgagor to the mortgagee,
because he will now have a new creditor in the person of the insurer, rule on
subrogation shall apply in this case. The insurer may demand reimbursement from
the mortgagor by virtue of his right of subrogation.
2.

3.

Mortgage Redemption Insurance

This is not a property insurance

It is a kind of life insurance procured by the mortgagor with the mortgagee as

beneficiary up to the extent of the mortgage indebtedness

i.e. in contract of loan obtained from the bank, the bank shall be named as the
beneficiary

It is to give protection to both the mortgagee and the mortgagor.

In case the mortgagor-insured dies, the proceeds of such insurance will be

applied to the payment of the mortgage debt to the mortgagee, thereby
relieving the heirs of the mortgagor of the burden of paying the debt.

Mortgage indebtedness will be extinguished by the application of the

insurance proceeds to the mortgage indebtedness.

Where mortgagor pays the insurance premium under the mortgage redemption
insurance policy, making the loss payable to the mortgagee, the insurance is
still on the mortgagors interest and the mortgagor continues to be a party to
the contract. The mortgagee is simply a beneficiary of the insurance to the
extent of the unpaid indebtedness and does not make the mortgagee a party to
the contract.
Union Mortgage Clause v. Open Mortgage Clause

Union Mortgage Cluase

Provides an independent contract between the
mortgagee and the insurer so that mortgagee
will be responsible only for his own acts
Mortgagee shall not be affected or prejudiced by
any act or neglect of the mortgagor
Creates a relation of insured & insurer between
mortgagee and insurance company.

Open Mortgage Clause

Mortgagor insures property
mortgaged
Makes the loss payable to mortgagee
Mortgagor does not cease to be a
party to the insurance contract
Thus any act of his which will void the
policy shall have the same effect

Case:

Rizal Commercial Banking Corporation v. CA

Mortgagor and a mortgagee have separate and distinct insurable interests in the
same mortgaged property, such that each one of them may insure the same property for his
own sole benefit. Although it appears that GOYU obtained the subject insurance policies

naming itself as the sole payee, the intentions of the parties as shown by their
contemporaneous acts, must be given due consideration in order to better serve the
interest of justice and equity.
RCBC has the right to claim the insurance proceeds, in substitution of the property
lost in the fire. Having assigned its rights, GOYU lost its standing as the beneficiary of the
said insurance policies

Philippine American Life Insurance Co. v. Pineda

Facts: On January 15, 1968, Rodolfo Dimayuga procured an ordinary life insurance policy
from the petitioner company and designated his wife and children as irrevocable
beneficiaries of said policy. In February 22, 1980, Dimayuga filed a petition before the CFI
of Rizal to amend the designation of the beneficiaries in his life policy from irrevocable to
revocable.
Held: The designation of the irrevocable beneficiaries could not be changed or amended
without the consent of all the irrevocable beneficiaries.
The applicable law in the instant case is the Insurance Act, otherwise known as
Act No. 2427 as amended, the policy having been procured in 1968. Under the said law, the
beneficiary designated in a life insurance contract cannot be changed without the consent
of the beneficiary because he has a vested interest in the policy. Inevitably therefore, based
on the aforequoted provision of the contract, not to mention the law then applicable, it is
only with the consent of all the beneficiaries that any change or amendment in the policy
concerning the irrevocable beneficiaries may be legally and validly effected. Both the law
and the policy do not provide for any other exception, thus, abrogating the contention of the
private respondent that said designation can be amended if the Court finds a just,
reasonable ground to do so.
Subsequently, the irrevocable beneficiaries, one of whom is already deceased
while the others are all minors, could not validly give consent to such amendment. The
alleged acquiescence of the six children beneficiaries of the policy (the beneficiary-wife
predeceased the insured) cannot be considered an effective ratification to the change of the
beneficiaries from irrevocable to revocable. Indubitable is the fact that all the six children
named as beneficiaries were minors at the time, for which reason, they could not validly
give their consent. Neither could they act through their father insured since their interests
are quite divergent from one another.
Therefore, the parent-insured cannot exercise rights and/or privileges
pertaining to the insurance contract for otherwise, the vested rights of the irrevocable
beneficiaries would be rendered inconsequential.
Part III Insurable Interest
A.

What is insurable Interest

In general
A person has an insurable interest in the subject-matter insured where he has
such a relation or connection with, or concern in, such subject matter that he
derive pecuniary benefit or advantage from its preservation or will suffer
pecuniary loss or damage from its destruction

Necessity of insurable interest

Essential to the validity and enforceability of the contract of insurance, and if
such interest is lacking, the policy is void.
This is a consequence of the principle that insurance is a contract of indemnity.
Furthermore, it is required to prevent speculative insurance, which are against
public policy.

B. Insurable interest in Life

Exists where there is reasonable ground, founded on the relation of the parties, either
pecuniary or contractual or by blood or affinity, to expect some benefit or advantage from
the continuance of the life of the insured.
It must be one in favor of the continuance of life and not an interest I nits loss
or destruction.

When must it exist?

It must exist at the time of the effectivity of the policy and need not exist at the
time of death of the insured, as life insurance is not a contract of indemnity.
As long as the life insurance is valid at its inception by reason of
the existence of insurable interest at the time, the subsequent diminution or
cessation of that interest does not invalidate the policy.

Beneficiary need not have insurable interest

A person procuring insurance on his own life may name anyone he chooses as
beneficiary thereof, even though he is a stranger had has no insurable interest
in the life of the insured.
However, a person who cannot receive donation from the insured
cannot be designated as beneficiary.

Consent of Insured Necessary

Life insurance policy taken by one person on the life of another must not only
have insurable interest on the life of the insured but he must likewise obtain the

consent of the insured, otherwise, it will not be valid unless subsequently

ratified by the insured.
EXPN: Parent insuring the life of an infant child

In the absence of an express provision in the policy providing for the

substitution of a contingent beneficiary upon the death of the beneficiary
ahead of the insured, the person to whom the proceeds of the policy are
payable depends on whether the beneficiary has a vested or non-vested
interest in the insurance prior to the insureds death.
Irrevocable beneficiary has a vested interest in the policy, thus the
legal representatives of such beneficiary are entitled to the proceeds of
the insurance as assets of his or her estate unless the proceeds were
made payable to the beneficiary only if living
Revocable beneficiary does not have a vested interest in the policy at
the time of his death, thus his estate or legal representatives derives no
interest from or through him, but the right to the proceeds passes to the
estate of the insured

Support, a source of Insurable Interest

A person has insurable interest in the life and health of any person on whom he
depends wholly or in part for education or support.
a.
Persons obliged to support each other:
i. Spouse
ii. Legitimate ascendants and descendants
iii. Parents and acknowledge natural children and the legitimate or
the illegitimate descendants of the latter
iv. Parents and natural children by legal fiction and the legitimate and
illegitimate descendants of the latter
v. Parents and illegitimate children who are not natural
vi. Brothers and sisters
Insurable interest on Debtors life
Insurable interest of a creditor on the life of a debtor must exist not only at
the time the policy takes effect, but also at the time of the debtors death, for
such kind of life insurances is still a contract of indemnity.
The creditor has insurable interest in the life of his debtor, at least to the
extent of the indebtedness
The test of a creditors insurable interest is whether the amt. of the debt is
reasonably proportionate to the amount of the insurance which he contracts

a.
b.
c.
d.

Who must have insurable interest

Section 10. Every person has insurable interest in the life and health:
of himself, of his spouse and of his children;
of any person on whom he depends wholly or in part for education or
support, or in whom he has a pecuniary interest
of any person under a legal obligation to him for the payment of money, or
respecting property or services, of which death or illness might delay or
prevent the performance; and
of any person upon whose life any estate or interest vested in him depends

Beneficiary
The person for whose benefit the policy is issued and to whom the loss is payable.
o

Who may be a beneficiary

Any person may be designated as beneficiary in a life insurance contract
even though he is a stranger & has no insurable interest in the life insured.
Exceptions (those forbidden by law to receive donations from the insured):
a.
Between persons who are guilty of adultery or concubinage at the time of
the donation
Rule:
Conviction for adultery or concubinate not required. Criminal
conviction is not necessary for disqualification. The guilt of the insured
and beneficiary may be proved by mere preponderance of evidence.
Does not extend to the illegitimate children born out of the illicit
relation between the parties to the adultery or concubinage.
b.
Between persons found guilty of the same criminal offense, in
consideration thereof
c.
Those made to a public officer or his wife, descendants and ascendants,
by reason of his office
Kinds of beneficiary

o
o

Extent of interest of beneficiary

When a beneficiary has been designated and the right to change him
has been expressly waived in the policy, he could not be deprived of his
vested interest by the insured by putting an end to the policy.

Should the insured discontinue paying premiums, the beneficiary may

continue paying it and be entitled to automatic extended term or paidup insurance options

An irrevocable beneficiary cannot be changed without his consent as

he has a vested interest in the policy, nor may the insured add other
beneficiaries without the consent of the irrevocable beneficiary. No
amendment of the designation of the beneficiaries can be effected
without the consent of the irrevocable beneficiary. Additional
beneficiaries will diminish the interest of the IB in the policy. The
insured cannot obtain a policy loan or cash surrender value on the
policy without the consent of the IB because the latters vested right
extends to all benefits accruing to the policy.

Effect if beneficiary predeceases the insured

Effect if beneficiary kills insured

Where the beneficiary is the principal, accomplice or accessory in
willfully bringing about the death of the insured, the interest of the
beneficiary in the policy shall be forfeited and the nearest relative of the
insured shall receive the proceeds of the insurance. Killing must be
intentional or willful and at the same time felonious.
Insurable Interest in Property

Test of insurable interest in property

Whether the insure has such a right, title, or interest therein, or relation thereto
that he will be benefited by its preservation and continued existence, or suffer a
direct pecuniary loss from its destruction or injury by the peril insured against.

Meaning of interest in property

It is not limited to ownership of the subject-matter of the insurance, it includes the
liability which the insured incurs in relation thereto, although he is not in
possession of the property and has no interest beyond the danger of pecuniary
damage from the loss of the property by reason of such assumed liability.

What constitutes insurable interest in property

May not only be an existing interest, but may also be an inchoate interest founded
on an existing interest or any expectancy coupled with an existing interest in that
out of which the expectancy arises.

Time when insurable interest in property must exist

Insurable interest must exist both at the time of the effectivity of the contract and
at the time of the loss
Reason:
1.
Insurable interest at the time of the effectivity of the policy is required to
prevent speculative insurances which are against public policy
2.
Insurable interest at the time of loss, is necessary because such kind of
insurance is a contract of indemnity and where the insured has no insurable
interest at the time of the loss, he does not suffer any damage for which he
should be indemnified
o

C.

Effect of change of interest

A change of interest in any part of the thing insured accompanied by a
corresponding change of interest in the policy, suspends the insurance to an
equivalent extent, until the interest in the thing and the interest in the insurance
are vested in the same person. Where a loss occurs during the period the policy
is under suspension, the insurer is not liable.
Insurance is a personal contract and while the insurer may be willing
to insure the property while owned by the insured, it may not be willing to insure
the same property if owned by another person.

Distinctions between insurable interest in life and property

Life
Property
Interest need not necessarily be strictly and
Based on pecuniary interest
exclusively a pecuniary one
Insurance need exist only at the time the
Interest must exist at the time the
insurance takes effect except in life insurance policy takes effect and at the
taken by the creditor on the life of debtor
time of the loss
No limit to the amount of insurable interest
Limited to the actual value of the
unless it is based on creditor-debtor
damage the insured may suffer
relationship
Beneficiary need not have insurable interest
Beneficiary must have insurable
interest

Measure of insurable interest

Effect if beneficiary has no insurable interest
Effect of change of interest in the thing insured (sec. 20)
Suspends the insurance to an equivalent extent until the interest in the thing and
the interest in the insurance are vested in the same person
Exceptions to sec. 20, when policy is not suspended

a.
b.
c.
d.
e.

When there is a prohibition against alienation or change of interest

without the consent of the insurer in which case the policy is not merely
suspended by avoided
In case of life, accident and health insurance
A change of interest in a thing insured, after the occurrence of an injury
which results in a loss
A change of interest in one or more of several distinct things, separately
insured by one policy does not avoid the insurance as to others
A change of interest, by will or succession, on the death of the insured
passes the interest in the insurance to the person taking the interest in
the things insured

f.
g.

A transfer of interest by one of several partners, joint owners, or owners

in common, who are jointly insured, to the others
When the policy is so framed that it will inure to the benefit of
whomsoever, during the continuance of the risk, may become the owner
of the interest insured

Void stipulations
a.
Payment of loss whether the person insured has or has no insurable
interest in the subject matter of insurance
b.
Policy shall be received as proof of such interest

c.

Every policy executed by way of gaming wagering